This is a revised competitive renewal of a grant to study activation of hematopoiesis in the mouse embryo. During the previous funding period, we used a novel transgenic embryo explant culture system to show that epithelial-mesenchymal interactions play an important role in yolk sac hematopoiesis and vascular development in the mouse. Diffusible signals from visceral endoderm mediate these interactions and can reprogram hematopoiesis in a tissue (anterior epiblast) that is not fated to form blood cells. We identified two hematopoietic-inducing VE signals, Indian hedgehog (Ihh) and Bone Morphogenetic Protein (BMP)-2, and found that they upregulate Bmp4 in explant culture. In the frog, the paired-type homeodomain transcription factor XMix.1 is induced by BMP4. Its ectopic expression in whole embryos transforms dorsal mesoderm to a ventral fate, resulting in formation of large numbers of blood cells. We cloned a mouse relative (mMix or Mixl) of the Xenopus and zebrafish Mix/Bix gene family and have generated a number of unique genetic models for analysis of its function during development. The single mouse Mix gene is expressed in the posterior VE prior to gastrulation and later in the primitive streak and nascent mesoderm in the gastrulating embryo. Although previous studies in the mouse embryo have pointed to a critical role for mMix in gastrulation, its function in the development of mesodermal derivatives remains unclear. Hematopoietic defects have been identified in differentiating embryonic stem (ES) cells in which mMix was genetically inactivated. We have recently discovered that conditional induction of mMix in ES cell-derived embryoid bodies results in acceleration of the mesodermal developmental program. A major finding to emerge from this work is that increased numbers of mesodermal, hemangioblastic, and hematopoietic progenitors form in response to premature activation of mMix. We hypothesize that mouse MX functions early in the recruitment and/or expansion of mesodermal progenitors to the hemangioblastic and hematopoietic lineages. In this application, we will: (1) identify the critical points in the mesoderm developmental program when mMix can regulate formation of hematopoietic stem/progenitor cells; (2) assess the developmental potentials of mMix- expressing cells and better define the surface antigens of the mesodermal progenitors for the hematopoietic lineage; (3) examine the consequences of deleting mMix function in mesodermal progenitors for the hematopoietic lineage in vivo. Characterization of mesodermal stem/progenitor cell populations and elucidation of the common as well as the distinguishing features of embryonic versus adult hematopoietic and vascular development will be of fundamental importance and may also advance our ability to modulate the self-renewal/differentiation of stem cells for therapeutic purposes. [unreadable] [unreadable] [unreadable]